A manufacturing strategy for India

ARUN MAIRA, Apr 8, 2010, 06.17am IST

Since the 1990s, growth of India's manufacturing sector has declined relative to the economy's growth. From the 1960s through the '80s, the sector had grown faster than the overall economy: it was an engine pulling the economy. However, by the end of the 1990s the overall economy had overtaken the manufacturing sector. Some may argue that if the overall economy is growing well — it has demonstrated the capability of growing at 9% per annum — there should be no concern with the slower growth of a particular sector. After all, other sectors must be growing much faster to compensate. This could be the view of economists who believe that policymakers should not pick 'winners' for growth. They would say that the right macroeconomic conditions must be created for growth, and let winners emerge. In India's case, the service sector has emerged a winner, and so be it such economists may say.

Nevertheless, there is concern with the relatively poor performance of the manufacturing sector. A principal concern is with the need to create more jobs in which the manufacturing sector should have a larger role to play at our stage of development. It is estimated that an additional 200 million Indians will enter the job market by 2025, with overall population growth and the large numbers of young people who will be joining the workforce. Moreover, with desperately needed improvements in agricultural productivity, there will be a shift towards manufacturing and services for jobs. Therefore manufacturing must pull its weight and contribute more for inclusive growth of the country. There is also concern that India's manufacturing sector is not developing sufficient depth. Comparisons are made with China from whom India imports not only large volumes of consumer products but also capital goods in strategic sectors such as telecom and power. The Chinese have created not only scale in manufacturing but also deep capabilities.

India needs a strategy for its manufacturing sector, not only to increase its rate of growth, but also the shape of that growth. The organised manufacturing sector must create more jobs, which it has not since the 1990s, and also create more depth with more value addition. Therefore, we must develop an effective manufacturing strategy to achieve its goals. Strategy is about making choices about what to do to achieve the desired results. Choices must be made about which manufacturing sectors will be more important for inclusive and sustainable growth in the next 25 years. Choices must also be made about the best ways to stimulate that growth.